Tax Advantages and Information
Additional Benefits of Saving in the NC 529 Plan

 

Tax-Free Earnings
The earnings on your NC 529 Account are free from federal and, for North Carolina residents, North Carolina income taxes, as long as you use your college savings for Qualified Higher Education Expenses, such as tuition, room and board, fees, and required equipment.

Tax Deduction for 2013 Contributions
There's an additional tax benefit for North Carolina taxpayers who contribute to North Carolina's 529 Plan in 2013. State taxpayers contributing to an Account in the NC 529 Plan are eligible for a state tax deduction for contributions of up to $2,500 (individual) or $5,000 (married couple, filing jointly), including rollovers from another state's 529 plan.*

Whether you are the owner of an NC 529 Account or making a contribution for a child who is the beneficiary of an NC 529 Account, as long as you are a North Carolina taxpayer, your 2013 contribution makes you eligible for this 2013 tax deduction. The 2011 benefit of the North Carolina income tax deduction to North Carolina taxpayers contributing to the NC 529 Plan have been provided by Holly K. Nicholson, CFP in 2011.

 

Savings
Potential Savings -- 2011 Tax Year
Income Example Tax Due With $2,500
Contribution
Reduced Tax Due
Savings
Single Filer 1 $12,750.00 $785.00 $615.00 $150.00
  $50,000.00 $3,372.50 $3,197.50 $175.00
  $75,000.00 $5,235.00 $5,041.25 $193.75
  $90,000.00 $6,397.50 $6,203.75 $193.75
 
Head of Household 2 $17,000.00 $1,020.00 $870.00 $150.00
  $75,000.00 $5,080.00 $4,905.00 $175.00
  $90,000.00 $6,205.00 $6,011.25 $193.75
  $100,000.00 $6,980.00 $6,786.25 $193.75
 
Income Example Tax Due $5,000 Limit
Reduced Tax Due
Savings
Married Filing Jointly 3 $21,250.00 $1,275.00 $975.00 $300.00
  $75,000.00 $5,037.50 $4,687.00 $350.00
  $110,000.00 $7,562.50 $7,175.00 $387.50
  $125,000.00 $8.725.00 $8,337.50 $387.50
 

*The features of a qualified tuition program are complex and invovle significant tax issues. The availability of tax benefits may be contingent on meeting other requirements. You should consult your own financial, tax or other advisor to learn about how the North Carolina taxpyaer deduction may apply to your specific circumstances.

North Carolina income tax forms may refer to contributions made to an account in the "Parental Savings Trust Fund" of the State Education Assistance Authority. This is the Trust Fund that holds all the assets of North Carolina's National College Savings Program, the NC 529 Plan.

Tax Related to Withdrawals
Withdrawals for Qualified Higher Education Expenses are exempt from both NC and federal income taxes. Should a Withdrawal be made for reasons other than Qualified Higher Education Expenses, the earnings portion of the Withdrawal is subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes.

If your Beneficiary receives a scholarship or appointment to a U.S. military academy, as long as you withdraw no more than the amount of the scholarship or cost of the academy education from you NC 529 Account, there will not be the 10% federal penalty tax; however, the earnings portion of this type of Withdrawal is subject to federal, and possibly state, income taxes.

See the Program Description for more information on Withdrawals and tax implications.

If you are not a resident of North Carolina, you may wish to consult an advisor in your state for information on your state's exemptions.

 
Used for examples in Potential Savings chart:
Income Brackets Tax Rate
1Single Filer 0 - $12,750 6.00%
  $12,750 - $60,000 $765 + 7% on amount over $12,750
  $60,000 plus $4,072.50 + 7.75% on amount over $60,000
 
2Head of Household 0 - $17,000 6.00%
  $17,000 - $80,000 $1,020 + 7% on amount over $17,000
  $80,000 plus $5,430 + 7.75% on amount over $80,000
 
3Married Filing Jointly 0 - $21,250 6.00%
  $21,250 - $100,000 $1,275 + 7% on amount over $21,250
  $100,000 plus $6,787 + 7.75% on amount over $100,000